- XAU/USD is holding north of $2,600/ounce, but topside momentum remains limited.
- Another spat of risk-off market sentiment pushed Gold higher on the year-end market session.
- Global markets will largely be shuttered on Wednesday for the New Year’s holiday.
XAU/USD caught a bid on a quiet Tuesday, rising back into $2,625.00 per ounce after taking a quick technical bounce off the $2,600 handle at the start of the week. Markets have been trading within tepid ranges for most of the holiday season as investors clock out for the year and await further fundamental drivers to kick off the next leg of market activity in either direction.
Investors spent much of 2024 enjoying themselves, with global markets rising on the back of a stiff AI-fuelled tech rally, which dragged equity indexes deep into record highs. Gold also saw a stellar yearly performance, climbing 40.61% bottom-to-top and setting record highs above $2,790 in October. Despite a sharp decline in November, XAU/USD has closed higher or even for all but two of the past eleven months.
Gold’s topside momentum fizzled just shy of $2,800 just as the US Dollar (USD) hit a bottom for 2024’s market action, implying the inverse relationship between the two assets remains strong. A turnaround in the US Dollar Index (DXY) could front-run a fresh step higher in XAU/USD bids. On the downside, inconsistent policy from incoming US President Donald Trump could skewer investor hopes for a continued rally into 2025, which would send the Greenback even higher on risk-off flows, and could drag Gold prices even lower.
XAU/USD price forecast
XAU/USD may be staunchly holding above $2,600 during the holiday season, but bidders remain constrained just below the 50-day Exponential Moving Average (EMA) drifting into $2,635. Bids are keeping their head above the waterline set at the last swing low into $2,560, but a recovery of December’s peak just north of $2,720 seems to be off the table in the near-term.
The immediate technical floor on another move lower is baked into the 200-day EMA near $2,485, while bidders will be looking for a full recovery to capture the top end and claim the $2,800 handle.
XAU/USD daily chart
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
